What are startups?
A group of friends with an innovative idea and not a penny in their pockets seek a way to found their startup (a term used to describe new ventures with high scalability potential and often focused on technology). This scenario, so common in the contemporary world, has given rise to several legal institutions.
This article aims to explore the ecosystem of companies known as startups , especially those focused on the legal field . It demonstrates their nuances, from the conception of the idea and how its development should proceed according to a current method, to the challenges imposed by the technological and legal markets.
Thus, the central idea that defines startups is "a human institution designed to create new products and services under conditions of extreme uncertainty" (RIES, 2012). The definition provided by Eric Ries, a figure of extreme relevance in the application of the startup development method , is broad and uncertain.
However, Brazil sought to define it clearly, through the LC 167/2019, the standard that established Inova Simples, the conceptualization of Startups and its characteristics.
In this sense, the law establishes that startups are companies "of an innovative nature that aim to improve systems, methods or business, production, service or product models, which, when already existing, characterize incremental startups, or, when related to the creation of something entirely new, characterize disruptive startups."
The opening, development, and consolidation of these innovative companies is no easy task. On the contrary, their founders face numerous challenges from the very beginning. These challenges can include: developing the idea in the market, choosing a niche, raising capital, legal barriers, and others. The legal market is no exception.
In order to make the path of entrepreneurs seeking to start their companies a little less tortuous, we will elucidate the application of the Lean Startup method in the development of legal startups , also known as Lawtechs , as well as the most well-known financing formats.
A Lean Startup e Lawtechs
The Lean Startup model was created by Eric Ries in his book of the same name.
It is a methodology for creating innovative products and services, based on trial and error. This is reflected in the author's phrase: "Fail, but fail fast."
According to Ries, many startups make the same traditional mistakes. That is, focusing on developing products and services without any market validation.
Now, imagine the following scenario: you develop an online legal service solution for consultations with lawyers in a specific inland city.
You invest, hire developers and designers, start a company, and launch it on the market.
The problem is that the predominant age group in that city's population consists of elderly people who dislike, don't know how to, or don't feel comfortable using online services. All the development of their service was possibly wasted.
All of this could have easily been avoided if the entrepreneur had made small adjustments along the way, such as interviewing city residents.
It is in this sense that Ries' method is applied.
According to Ries, the key to starting a business after identifying an opportunity is developing an MVP – Minimum Viable Product.
An MVP is a prototype of your product or service, with the fewest possible features, designed solely to test the idea in the market.
As a next step, the entrepreneur should take this minimum viable product to customers, test the developed solution, and gather their feedback.
These assessments should be used to develop the product or service, gradually transforming the minimum viable product. In this way, the solution is launched without inadequate value propositions, inefficient acquisition channels, or unnecessary features.
In this sense, the steps defined by Ries are:
- Build – Which consists of the conceptualization and development of the MVP;
- Measure – Take the MVP to market and collect data. Feedback;
- Learn.
It's important to point out that learning doesn't necessarily mean sticking to the original idea. The entrepreneur may realize that the initially conceived solution doesn't make sense in the market and therefore must pivot, that is, change the direction of their business.
In this topic, we briefly present a methodology for developing these technology companies. If you are interested in learning more, read: Startup Law: How to Practice Law in this Area?, by Professor Manassés.
Financing Methods Startups
As demonstrated by the concept of startups , these operate in uncertain market fields that are difficult to predict.
Because these companies are, for the most part, operated by visionary entrepreneurs seeking something not yet conceived in the market, one of their greatest difficulties lies in financing the project, often meaning the difference between success and the closure of their operations.
In simplified terms, "a company can seek financing in two different ways: internally and externally" (COELHO, 2018).
Internal Capital Financing Format
In short, internal capital investment is called bootstrapping , a term "used to describe the practice by which entrepreneurs use their own resources to create a company, always seeking to minimize company costs by leveraging the capabilities of the startup 's own employees" (FEIGELSON, NYBO and FONSECA, 2018).
Foreign Capital Financing Formats
As Feld and Mendelson teach us, startups can go through several phases of external funding, each with its own agents.
- First phase: capital pre-seed, seed (seed) e Series A, aimed at financing early startupsstage (initial stage).
At this stage, investments are small and aim to provide a starting point for the envisioned company. Typically, these investments are made by the so-called "3 F's" – Family , friends, and fools, followed by angel investors.
- Second stageSeries B and C capital, aimed at companies with greater stability and a certain market share.
Here, companies are looking to scale their businesses. In this case, investments are made by professional investors, often companies set up for this purpose, known as Venture Capital firms.
- Third phase: Series D funding is intended for companies that often already have a well-established market presence and are seeking expansion into new geographic regions.
The most common investors in this scenario are private equity firms.
The Legal Market
It is also important to remember that the legal environment, where Lawtechs will operate , is marked by a deep traditionalism that often hinders the free development of these companies.
The idea that "it's no use implementing new technologies in the face of old habits" is a paradigm that new entrepreneurs in this market must confront.
Many new lawyers entering the job market possess a broad understanding of technological development and a strong focus on marketing.
It has been observed, however, that the vast majority of these companies, perhaps due to the environment in which they operate, have adopted “the same management model as artisan offices, with widespread complacency and a set of immutable, untouchable internal processes, and with conservative leaders (…)” (Koetz, 2018).
Brazil has the potential to position itself at the forefront of digital legal transformation processes. To achieve this, entrepreneurs need to turn their attention to law firms and their managers, listening to the lawyers who lead today's legal market, in the broadest sense of applying the Lean Startup methodology.
Only in this way will it be possible to create content strategies and develop applications that are suited to the reality imposed by the digital legal world.
As Professor Daniel Abreu rightly pointed out in "Technology, Innovation and Development in Law: Why are they important?" , the use of technology in law must go beyond the visual aspect and extends beyond the mere in-depth computerization of the traditional law firm. A new way of thinking about law is necessary.
At IDP, with the Postgraduate Program in Digital Law, you can prepare for this new reality, including courses that specifically study new businesses in the digital economy, as well as various other topics relevant to today's world.
References
BRAZIL. Complementary Law No. 167, of April 24, 2019. Available at: Accessed on: September 25, 2023.
COELHO, Fábio Ulhoa. Course in Commercial Law: Business Law. 15th ed. São Paulo: Saraiva, 2014. v. 3.
FEIGELSON, Bruno; NYBO, Erik Fontenele; FONSECA, Victor Cabral. Startup Law. São Paulo: Saraiva, 2018.
FELD, Bred; MENDELSON, Jason. Venture Deals: be smarter than your lawyer and venture capitalist. 3rd ed. New Jersey: John Wiley & Sons, 2017. 304 p
RIES, Eric (ed.). The Lean Startup: How Today's Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses. São Paulo: Leya, 2012. Translation: Carlos Szlak.
KOETZ, Eduardo. Lawtechs and Legaltechs: where is the difficulty for growth. Available here . Accessed on: September 25, 2023.
